Gosh, as usual the state of play here has gotten confused—for me, anyway. First of all, the thing I am least confused about is the policy recommendation. I do not think we should do anything at this time. I think we should stay the course at 5¼. I am very much in favor of alternative B.
Second, I want to comment about what Vince said about the reaction to our statement the last time, in large part because I found that the people who talked to me about it over the past several weeks felt that our statement communication was somehow murkier than usual, if that is possible. Personally, I felt that we were very clear in that statement—we saw that there was more two-sided risk—and ultimately the market has come around to that belief. I guess I have come to the view that it is not a bad thing that the market reacted a bit more strongly. We probably should have anticipated that, and I think I even commented about it at the last meeting—that when you make a change to open a two-way possibility for policy a little more explicitly, it will have a bigger impact on the overall market.
Third, with regard to the discussion about the language in alternative B, I was of the opinion that in terms of growth we have a certain set of risks coming from the housing market and rising energy and gasoline prices, which to some extent was offset by continued strength in employment, the financial market adding to household wealth, the growth around the rest of the world, some brighter picture from business investment spending, and so forth. So I look at the growth part of this as a bit more balanced and somewhat less uncertain than last time but at the inflation part as being more uncertain. So I was attracted both to President Stern’s recommendation and even to a recommendation that would replace section 3 of alternative B with section 3 of alternative C. But I think about the Chairman’s most recent comments about how strongly the market might react to that, what it might say about what has been a nuanced discussion here about inflation. We all expect inflation—we in Boston somewhat less than the rest of you—to moderate over the next year or year and a half to something that is within what some people have called their comfort zone. I am a little worried that we might send a message of more concern than we might have intended from replacing that language, although I agree with President Stern. I think the language of alternative C, particularly with regard to uncertainty, is somewhat more reflective of what we talked around the table than the existing language of section 3.
Finally, I may be kidding myself here, but I have been taking the language in section 3 as saying not so much that we’re committed to a comfort zone of between 1 and 2, although I take President Poole’s comments on this seriously, but rather that the dynamics of inflation had the risk that inflation would accelerate rather than decelerate and that is what we were concerned about. Again, that is my personal reading on this because that is the context in which I think about concerns about inflation at this time. I would agree with President Poole that there is a way in which you can read this that is gradually pushing us into giving a target and a target range, and that may be where everybody wants to go here. I do not know, but I think there is a little risk around a specific number, as I have said many times. I would agree with Governor Kohn and his comments about wondering whether we really want to push inflation just for the sheer sake of pushing it to below 2 or, rather, waiting for the ability to move opportunistically at some point.